The Bank of Japan’s closely watched quarterly Tankan survey is considered the broadest indicator of how Japanese businesses are faring.
It reports the difference between the percentage of firms that are upbeat and those that see conditions as unfavourable.
Among major manufacturers, business confidence fell to plus one from plus seven three months earlier.
The reading was the lowest since December 2020, marking the fifth quarterly drop in sentiment, and was below market expectations of plus four.
Optimism grew slightly among non-manufacturers, however, from 19 to 20. A positive figure means more businesses feel optimistic than pessimistic.
During the fraught first months of the Covid-19 pandemic, in June 2020, the Tankan score for Japan’s big manufacturers plunged to minus 34.Tsuyoshi Ueno, a senior economist at NLI Research Institute, had predicted a drop in the manufacturing reading ahead of the survey’s release on Monday.
“Business confidence among large manufacturers is expected to worsen markedly, given high raw material and fuel prices, as overseas demand falls and the global semiconductor market continues to deteriorate,” he said.
Central banks around the world have hiked interest rates to tackle soaring inflation linked to the war in Ukraine and other factors, but the Bank of Japan has stuck to its longstanding monetary easing policies.
The BoJ’s new governor Kazuo Ueda is due to take the helm this month when Haruhiko Kuroda steps down after a decade in the job.
In February, Ueda said the continuation of monetary easing was “appropriate”, warning of uncertainty in financial markets and the global economy.
